Slowdown forces a freeze at M&S

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MARKS & SPENCER has ordered a freeze on new investment projects as a response to the global economic slowdown which is threatening to hit sales in the UK and abroad.

The move will slow the retail giant's ambitious push into continental Europe, where it had planned to be running 60 stores within the next two years.

It has now decided to keep its focus on its current network of 42 outlets until the economic outlook improves.

"The strategy to have a presence in key markets is not in question," a spokeswoman said yesterday. "It's merely the timing that is under review."

The remarkable shift comes just a year after Sir Richard Greenbury, M&S's combative chairman, unveiled plans to invest pounds 2.2bn in its businesses over the next three years, effectively doubling the company's annual capital spending budget.

However, City investors have become increasingly concerned about the plans, arguing that they were poorly timed in the light of the rapidly deteriorating economic climate, which has hit High Street sales. They also questioned whether the company's balance sheet was capable of taking the strain that the spending programme induced.

Earlier this year Sir Richard embarked on a round of City meetings to reassure shareholders about the company's prospects.

The investment freeze is part of a cost-cutting programme which is designed to protect M&S's profit margins from the worst effects of the slowdown. The company has already told its suppliers, with whom it has very close links, that they will have to source more products from overseas in order to make the most of the strong pound.

M&S stressed that all existing projects will continue to go ahead. The company has already committed funds to the refurbishment of the 19 stores it bought from Littlewoods last year.

Stores planned for Frankfurt and Barcelona, which are due to open next year, will go ahead, as will an outlet in the new Bluewater Park development in Kent.

However, tentative plans to push into new regions in countries such as Germany have been put on hold indefinitely.

The company's plans to expand in the Far East by opening up franchise stores are under review, while M&S has also told Brooks Brothers and King's, the group's US businesses, to rein in spending.

Sir Richard is expected to repeat the reasons for the move at the beginning of November, when M&S reports its interim results.